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Greenberg: Should the SEC Clamp Down on Special Deals for Activists?

Back in November, I wrote a piece questioning whether activists are engaging in a new-age greenmail. It was tied back to deals involving Take-Two Interactive, ADT and Yahoo buying back big stakes from activists.In the piece I quoted veteran money manager John A. Levin as saying, 'While there is nothing wrong apparently with an activist going on board and selling stock back to the company -- and apparently nothing wrong with the company buying it -- I don't feel it's good public policy and feel the public should have a chance to participate in these transactions.' A week ago Levin went on to pen an op-ed piece in the Wall Street Journal, in which he elaborated:'In the U.S., all tenders should ideally be open to all shareholders. At a minimum, when a corporation allows directors to selectively tender their stock-an event that should be considered a material development-the Securities and Exchange Commission should enact rules to ensure the fairness of those transactions for all shareholders. A relatively simple SEC rule change would require that companies file notice of the proposed purchase of stock held by directors with a two-day waiting period. . . .'

It was tied back to deals involving Take-Two Interactive (TTWO), ADT (ADT) and Yahoo! (YHOO) buying back big stakes from activists.

In the piece I quoted veteran money manager John A. Levin as saying, "While there is nothing wrong apparently with an activist going on board and selling stock back to the company -- and apparently nothing wrong with the company buying it -- I don't feel it's good public policy and fee the public should have a chance to participate in these transactions."

"In the U.S., all tenders should ideally be open to all shareholders. At a minimum, when a corporation allows directors to selectively tender their stock -- an event that should be considered a material development -- the Securities and Exchange Commission should enact rules to ensure the fairness of those transactions for all shareholders.

"A relatively simple SEC rule change would require that companies file notice of the proposed purchase of stock held by directors with a two-day waiting period. Shareholders could evaluate this information and make a determination about the impact of such transactions on the value of their own holdings.

"From a practical standpoint, such notices by a company may well result in lower stock prices that would benefit the company's efforts to buy back its shares. Shareholders retaining their positions would also benefit from any buyback that occurs at a lower price. Knowing that a director who owns a block of the company's stock contemplated a sale would enable shareholders to make an informed decision whether to sell, retain or increase their holdings."